# ECO561 ECO/561 FINAL EXAM (SOLUTION 39/39) - 75767

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1) Suppose that the price of peanuts falls from \$3 to \$2 per bushel and that, as a result, the total revenue received by peanut farmers changes from \$16 to \$14 billion. Thus: A. the demand curve for peanuts has shifted to the right. B. the demand for peanuts is elastic. C. the demand for peanuts is inelastic. D. no inference can be made as to the elasticity of demand for peanuts. 2) The advent of DVDs has virtually demolished the market for videocassettes. This is an example of: A. capital accumulation. B. the difference between normal and economic profits. C. creative destruction. D. derived demand. 3) If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A. be unchanged. B. either increase or decrease, depending on what happens to supply. C. increase D. decrease 4) Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that: A. The supply of and demand for clothing have grown by the same proportion. B. There is no way to determine what has happened to supply and demand with this information. C. The supply of clothing has grown faster than the demand for clothing. D. Demand for clothing has grown faster than the supply of clothing. 5) Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of \$18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of \$19,500 per car. These statements: A. suggest that the demand for Mustangs increased between 2007 and 2008. B. constitute an exception to the law of demand in that they suggest an upsloping demand curve. C. suggest that the demand for Mustangs decreased between 2007 and 2008. D. suggest that the supply of Mustangs must have increased between 2007 and 2008. 6) Which of the following statements is true about productive and allocative efficiency? A. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously. B. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other. C. Realizing allocative efficiency implies that productive efficiency has been realized. D. Productive efficiency can only occur if there is also allocative efficiency. 7) If a firm in a purely competitive industry is confronted with an equilibrium price of \$5, its marginal revenue: A. will be less than \$5. B. will be greater than \$5. C. may be either greater or less than \$5. D. will also be \$5. 8) If technology dictates that labor and capital must be used in fixed proportions, an increase in the price of capital will cause a firm to use: A. less labor as a consequence of the substitution effect. B. less labor as a consequence of the output effect. C. more labor as a consequence of the substitution effect. D. more labor as a consequence of the output effect. 9) If a firm is selling in an imperfectly competitive product market, then: A. the marginal products of successive workers can be sold at higher prices. B. the marginal products of successive workers can be sold at a constant price. C. A. average product will be less than marginal product for any number of workers hired. D. the marginal products of successive workers must be sold at lower prices. 10) In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are \$2. 00 and its average fixed costs are \$. 50. The firm's total costs: A. are \$750. B. are \$1,100. C. are \$2. 50. D. are \$1,250. 11) In which of the following industries are economies of scale exhausted at relatively low levels of output? A. concrete mixing B. newspaper printing C. aircraft production D. automobile manufacturing 12) If a firm decides to produce no output in the short run, its costs will be: A. its fixed costs. B. zero. C. its marginal costs. D. its fixed plus its variable costs. 13) If the wage rate increases: A. a purely competitive and an imperfectly competitive producer will both hire less labor. B. an imperfectly competitive producer will hire less labor, but a purely competitive producer will not. C. a purely competitive producer will hire less labor, but an imperfectly competitive producer will not. D. an imperfectly competitive producer may find it profitable to hire either more or less labor. 14) A firm can hire six workers at a wage rate of \$8 per hour but must pay \$9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is: A. \$15. B. \$10. C. \$9. D. \$21. 15) A profit-maximizing firm will: A. expand employment if marginal revenue product equals marginal resource cost. B. reduce employment if marginal revenue product exceeds marginal resource cost. C. expand employment if marginal revenue product exceeds marginal resource cost. D. reduce employment if marginal revenue product equals marginal resource cost. 16) Price exceeds marginal revenue for the pure monopolist because the: A. monopolist produces a smaller output than would a purely competitive firm. B. demand curve is downsloping. C. law of diminishing returns is inapplicable. D. demand curve lies below the marginal revenue curve. 17) Oligopoly is difficult to analyze primarily because: A. output may be either homogenous or differentiated. B. the price and output decisions of any one firm depend on the reactions of its rivals. C. the number of firms is too large to make collusion understandable. D. neither allocative nor productive efficiency is achieved. 18) A competitive firm will maximize profits at that output at which: A. price exceeds average total cost by the largest amount. B. total revenue and total cost are equal. C. total revenue exceeds total cost by the greatest amount. D. the difference between marginal revenue and price is at a maximum. 19) Which of the following is not a possible source of natural monopoly? A. greater use of specialized inputs B. simultaneous consumption C. large-scale network effects D. rent-seeking behavior 20) Advertising can impede economic efficiency when it: A. enables firms to achieve substantial economies of scale. B. reduces brand loyalty. C. increases entry barriers. D. increases consumer awareness of substitute products. 21) One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases? A. a rather large number of firms producing a homogeneous product B. a very small number of firms producing a differentiated product C. a rather large number of firms producing a differentiated product D. a very small number of firms producing a homogeneous product 22) Monopolistic competition means: A. many firms producing differentiated products. B. a large number of firms producing a standardized or homogeneous product. C. a market situation where competition is based entirely on product differentiation and advertising. D. a few firms producing a standardized or homogeneous product. 23) In an oligopolistic market: A. the four largest firms account for 20 percent or less of total sales. B. products may be standardized or differentiated. C. one firm is always dominant. D. the industry is monopolistically competitive. 24) Suppose that an industry is characterized by a few firms and price leadership. We would expect that: A. price would exceed both marginal cost and average total cost. B. price would equal marginal cost. C. price would equal average total cost. D. marginal revenue would exceed marginal cost. 25) In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: A. average variable cost. B. average total cost. C. marginal revenue. D. average cost. 26) Those who contend that oligopolists are less likely than more competitive firms to engage in R&D say that: A. entry barriers enable oligopolists to sustain the profits they gain from innovation. B. Oligopolists have little incentive to introduce costly new technology and produce new products when they currently are earning large economic profit using existing technol-ogy and selling existing products. C. the undistributed profits of oligopolists give them a source of readily available, relatively low cost funds for financing R & D. D. the large size of oligopolists' R&D departments allow them to use very specialized, expensive R&D equipment and employ teams of specialized researchers. 27) Other things equal, a price discriminating monopolist will: A. produce a larger output than a nondiscriminating monopolist. B. produce a smaller output than a nondiscriminating monopolist. C. produce the same output as a nondiscriminating monopolist. D. realize a smaller economic profit than a nondiscriminating monopolist. 28) Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggre-gate: A. supply curve will shift rightward. B. supply curve will shift leftward. C. expenditures curve will shift downward. D. demand curve will shift leftward. 29) Inflation is undesirable because it: A. invariably leads to hyperinflation. B. usually is accompanied by declining real GDP. C. reduces everyone's standard of living. D. arbitrarily redistributes real income and wealth. 30) The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are: A. services and nondurable consumer goods. B. clothing and education. C. capital goods and durable consumer goods. D. military goods and capital goods. 31) Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is: A. structurally unemployed. B. frictionally unemployed. C. not a member of the labor force. D. cyclically unemployed. 32) Real GDP measures: A. current output at base year prices. B. base year output at current prices. C. base year output at current exchange rates. D. current output at current prices. 33) Expansionary fiscal policy is so named because it: A. necessarily expands the size of government. B. is aimed at achieving greater price stability. C. is designed to expand real GDP. D. involves an expansion of the nation's money supply. 34) In a fractional reserve banking system: A. the monetary system must be backed by gold. B. banks can create money through the lending process. C. the Federal Reserve has no control over the amount of money in circulation. D. bank panics cannot occur. 35) Assume the Standard Internet Company negotiates a loan for \$5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction: A. the supply of money declines by the amount of the loan. B. the supply of money is increased by \$5,000. C. the Metro Bank acquires reserves from other banks. D. a claim has been "demonetized. " 36) Stabilizing a nation's price level and the purchasing power of its money can be achieved: A. only with monetary policy. B. only with fiscal policy. C. with neither fiscal nor monetary policy. D. with both fiscal and monetary policy. 37) An unexpected increase in the money supply of 10% will cause the short-run exchange rate to: A. Depreciate by less than 10%. B. Depreciate by more than 10%. C. Appreciate by less than 10%. D. Appreciate by more than 10%. 38) ___________ purchasing power parity states that the difference between changes over time in product-price levels in two countries will be offset by the change in the exchange rate over this time. A. Partial B. Relative C. Absolute D. Full 39) The quantity theory of the demand for money states that a country’s money supply is proportional to: A. The real level of gross domestic product. B. The exchange rate. C. The money value of gross domestic product. D. The domestic interest rate.
Solution Description

1) Suppose that the price of peanuts falls from \$3 to \$2 per bushel and that, as a result, the total revenue received by peanut farmers changes from \$16 to \$14 billion. Thus:
A. the demand curve for peanuts has shifted to the right.
B. the demand for peanuts is elastic.
C. the demand for peanuts is inelastic.
D. no inference can be made as to the elasticity of demand for peanuts.
2) The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
A. capital accumulation.
B. the difference between normal and economic profits.
C. creative destruction.
D. derived demand.
3) If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:
A. be unchanged.
B. either increase or decrease, depending on what happens to supply.
C. increase
D. decrease
4) Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that:
A. The supply of and demand for clothing have grown by the same proportion.
B. There is no way to determine what has happened to supply and demand with this information.
C. The supply of clothing has grown faster than the demand for clothing.
D. Demand for clothi

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